Small-Cap Sultans: 3 Stocks Ready to Claim Their Throne in the Market

Small-cap stocks attract a lot of attention from investors due to their more attractive valuations compared to their large-cap counterparts, providing opportunities for substantial returns. The previous year was dominated by the “Magnificent Seven”, which generated almost all of the market’s gains. S&P500 And Nasdaq clues.

However, this year could mark a turning point for small-cap stocks as they rebound from underperformance, while many large-cap and mega-cap stocks are perceived as overvalued. With market capitalizations between $300 million and $2 billion, these companies can quickly adapt to market changes and capitalize on niche opportunities.

Despite lagging the broader market since last May, small-cap stocks trade at more attractive valuation ratios than large-cap stocks. Perhaps now is the time for investors to allocate part of their portfolio to these companies. This article highlights three of the best small-cap stocks to consider.

Small Cap Stocks: LivePerson (LPSN)

Live person (NASDAQ:LPSN) provides AI-powered messaging solutions for businesses. The company is a leader in AI-powered customer engagement and has strong growth prospects.

LPSN reported total revenue of $85.1 million for the first quarter of 2024. It exceeded the high end of its forecast range, although it marked a 20.9% decline from the last year. The company signed 40 contracts during the quarter, including 12 new customers and 28 renewals or extensions. Average trailing twelve month revenue per enterprise and midsize customer increased 11.6% to $625,000.

Adjusted EBITDA for the first quarter was $0.5 million. This is a notable improvement from the adjusted EBITDA loss of $1.3 million in the first quarter of 2023. However, the net loss for the quarter widened to $35.6 million, or 40 cents per share. Last year, the net loss was $17.4 million, or 23 cents per share, for the same period.

While the AI ​​revolution is still underway, I believe LPSN’s presence will only grow over time, and its tiny valuation of just 0.14 times sales means it can be bought at a bargain price. advantageous.

Enphase Energy (ENPH)

Enphase Energy (NASDAQ:ENPH) designs and manufactures software solutions for home energy. This includes solar generation, home energy storage and web-based monitoring and control.

The company’s financial results for the first quarter of 2024 highlighted a decline in revenue to $263.3 million, compared to $302.6 million in the previous quarter. The company reported a GAAP net loss of $16.1 million, contrasting with non-GAAP net income of $48.0 million. During this period, Enphase shipped 1.38 million microinverters and 75.5 MWh of IQ batteries.

The outlook for the second quarter of 2024 is optimistic, with revenues expected between $290 million and $330 million. GAAP gross margins are expected to be between 42% and 45% and non-GAAP gross margins are expected to be between 44% and 47%. The company expects increased shipments of IQ batteries and microinverters, which will contribute to this growth.

I think ENPH could be one of those small-cap sultans, as analysts are predicting double-digit increases in its revenue and earnings per share (PES) from 2024 to 2028, taking full advantage of the global transition to clean energy.

Digital Turbine (APPS)

Digital turbine (NASDAQ:APPS) provides a platform for mobile carriers and OEM device manufacturers to simplify app discovery. It has seen strong growth driven by the proliferation of mobile devices and the increasing use of applications.

In the fourth quarter of 2024, the company had revenue of $112.2 million. This is a 20% decrease from $140.1 million in the same quarter a year ago. The company suffered a significant net loss of $236.5 million. This result is mainly explained by a non-cash goodwill impairment charge of $189.5 million.

For fiscal 2025, Digital Turbine forecasts revenue between $540 million and $560 million. Additionally, non-GAAP adjusted EBITDA is expected to be between $85 million and $95 million. Despite setbacks over the past year, the company remains focused on expanding its mobile platform offerings and improving its financial performance.

In particular, depreciation charges are not to be feared if the rest of the activity is solid with a positive trajectory. With AAPS trading at just 3.2 times forward earnings, I believe it is undervalued. Continued penetration of the mobile device market potentially makes it a small-cap sultan in the making.

As of the date of publication, Matthew Farley did not hold (either directly or indirectly) any positions in any securities mentioned in this article. The opinions expressed are those of the author, subject to InvestorPlace.com Publishing Guidelines.